PERFORMANCE APPRISAL

The term performance appraisal refers to the regular review of an employee's job performance and overall contribution to a
company. Also known as an annual review, performance review or evaluation, or employee appraisal, a performance
appraisal evaluates an employee’s skills, achievements, and growth, or lack thereof.

Companies use performance appraisals to give employees big-picture feedback on their work and to justify pay increases
and bonuses, as well as termination decisions. They can be conducted at any given time but tend to be annual, semi-annual,
or quarterly.

 Companies use performance appraisals to determine which employees have contributed the most to the company’s
growth, review progress, and reward high-achieving workers.
 Although there are many different kinds of performance reviews, the most common is a top-down review in which a
manager reviews their direct report.
 Employees who believe the evaluation's construction isn't reflective of their company's culture may feel dissatisfied
with the appraisal process.

How Performance Appraisals Work

 Performance appraisals are usually designed by human resources (HR) departments as a way for employees to
develop in their careers. They provide individuals with feedback on their job performance. It ensures that employees
are managing and meeting the goals expected of them, giving them guidance on how to reach them if they fall short.
 Because companies have a limited pool of funds from which to award incentives, such as raises and bonuses,
performance appraisals help determine how to allocate those funds. They provide a way for companies to determine
which employees have contributed the most to the company’s growth so companies can reward their top-performing
employees accordingly..

1. Establish Performance Standards:

The appraisal process begins with the establishment of performance standards. The managers must determine what outputs,
accomplishments and skills will be evaluated. These standards should have evolved out of job analysis and job descriptions.

These performance standards should also be clear and objective to be understood and measured. Standards should not be
expressed in an articulated or vague manner such as “a good job” or “a full day’s work” as these vague phrases tells
nothing.

2. Communicate Performance Expectations to Employees:

Once the performance standards are established, this need to be communicated to the respective employees so that they
come to know what is expected of them. Past experience indicates that not communicating standards to the employees
compounds the appraisal problem.
Here, it must be noted that mere transference of information (relating to performance standards, for example) from the
manager to the employees is not communication It becomes communication only when the transference of information has
taken place and has been received and understood by the employees’.

The feedback from the employees on the standards communicated to them must be obtained. If required, the standards may
be modified or revised in the light of feedback obtained from the employees. It is important to note that communication is a
two-way street.

3. Measure Actual Performance:

This is the third step involved in the appraisal process. In this stage, the actual performance of the employee is measured on
the basis of information available from various sources such as personal observation, statistical reports, oral reports, and
written reports. Needless to mention, the evaluator’s feelings should not influence the performance measurement of the
employee. Measurement must be objective based on facts and findings. This is because what we measure is more critical
and important to the evaluation process than how we measure.

4. Compare Actual Performance with Standards:

In this stage, the actual performance is compared with the predetermined standards. Such a comparison may reveal the
deviation between standard performance and actual performance and will enable the evaluator to proceed to the fifth step in
the process, i.e., the discussion of the appraisal with the concerned employees.

5. Discuss the Appraisal with the Employee:

The fifth step in the appraisal process is to communicate to and discuss with the employees the results of the appraisal. This
is, in fact, one of the most challenging tasks the manager’s face to present an accurate appraisal to the employees and then
make them accept the appraisal in a constructive manner.

A discussion on appraisal enables employees to know their strengths and weaknesses. This has, in turn, impact on their
future performance. Yes, the impact may be positive or negative depending upon how the appraisal is presented and
discussed with the employees.

6. Initiate Corrective Action:

The final step in the appraisal process is the initiation of corrective action when it is necessary. The areas needing
improvement are identified and then, the measures to correct or improve the performance are identified and initiated.

The corrective action can be of two types. One is immediate and deals predominantly with symptoms. This action is often
called as “putting out fires.” The other is basic and delves into causes of deviations and seeks to adjust the difference
permanently.

This type of action involves time to analyse deviations. Hence, managers often opt for the immediate action, or say, “put out
fires”. Training, coaching, counselling, etc. is the common examples of corrective actions that managers initiate to improve
the employee performance.

Six modern performance appraisal methods

With the right performance appraisal method, organizations can enhance employee performance within the organization. A
good employee performance review method can make the whole experience effective and rewarding.

Here’s a close look at the six most-used modern performance methods:

1. Management by Objectives (MBO)
Management by objectives (MBO) is the appraisal method where managers and employees together identify, plan, organize,
and communicate objectives to focus on during a specific appraisal period. After setting clear goals, managers and subordinates
periodically discuss the progress made to control and debate on the feasibility of achieving those set objectives.

This performance appraisal method is used to match the overarching organizational goals with objectives of employees
effectively while validating objectives using the SMART method to see if the set objective is specific, measurable, achievable,
realistic, and time-sensitive.

At the end of the review period (quarterly, half-yearly, or annual), employees are judged by their results. Success is rewarded
with promotion and a salary hike whereas failure is dealt with transfer or further training. This process usually lays more stress
on tangible goals and intangible aspects like interpersonal skills, commitment, etc. are often brushed under the rug.

2. 360-Degree Feedback
360-degree feedback is a multidimensional performance appraisal method that evaluates an employee using feedback collected
from the employee’s circle of influence namely managers, peers, customers, and direct reports. This method will not only
eliminate bias in performance reviews but also offer a clear understanding of an individual’s competence.

This appraisal method has five integral components like:

1. Self-appraisals
Self-appraisals offer employees a chance to look back at their performance and understand their strengths and weaknesses.
However, if self-appraisals are performed without structured forms or formal procedures, it can become lenient, fickle, and
biased.

2. Managerial reviews
Performance reviews done by managers are a part of the traditional and basic form of appraisals. These reviews must include
individual employee ratings awarded by supervisors as well as the evaluation of a team or program done by senior managers.

3. Peer reviews
As hierarchies move out of the organizational picture, coworkers get a unique perspective on the employee’s performance
making them the most relevant evaluator. These reviews help determine an employee’s ability to work well with the team, take
up initiatives, and be a reliable contributor. However, friendship or animosity between peers may end up distorting the final
evaluation results.

4. Subordinates Appraising manager (SAM)

This upward appraisal component of the 360-degree feedback is a delicate and significant step. Reportees tend to have the most
unique perspective from a managerial point of view. However, reluctance or fear of retribution can skew appraisal results.

5. Customer or client reviews

The client component of this phase can include either internal customers such as users of product within the organization or
external customers who are not a part of the company but interact with this specific employee on a regular basis.
 Customer reviews can evaluate the output of an employee better, however, these external users often do not see the impact of
processes or policies on an employee’s output.

Advantages of using 360-degree feedback:

 Increase the individual’s awareness of how they perform and the impact it has on other stakeholders
 Serve as a key to initiate coaching, counselling, and career development activities
 Encourage employees to invest in self-development and embrace change management
 Integrate performance feedback with work culture and promote engagement

Ideal for:
Private sector organizations than public sector organisations as peer reviews at public sector organizations are more lenient.

Common reason for failure:

Leniency in review, cultural differences, competitiveness, ineffective planning, and misguided feedback

Did you know?

Top private organizations like RBS, Sainsbury’s, and G4S are using 360-degree, multi-rater performance feedback to measure
employee performance.

3. Assessment Centre Method

The concept of assessment centre was introduced way back in 1930 by the German Army but it has been polished and tailored
to fit today’s environment. The assessment centre method enables employees to get a clear picture of how others observe them
and the impact it has on their performance. The main advantage of this method is that it will not only assess the existing
performance of an individual but also predict future job performance.

During the assessment, employees are asked to take part in social-simulation exercises like in-basket exercises, informal
discussions, fact-finding exercises, decision-making problems, role-play, and other exercises that ensure success in a role. The
major drawback of this approach is that it is a time and cost intensive process that is difficult to manage.

Advantages of the assessment centre method:

 Enhance a participant’s knowledge, boost his/her thought process, and improve employee efficiency
 Can be tailored to fit different roles, competencies, and business needs
 Offer an insight of the employee’s personality (ethics, tolerance, problem-solving skill, introversion/extroversion, adaptability,
etc.)

Ideal for:

Manufacturing organizations, service-based companies, educational institutions, and consulting firms to identify future
organizational leaders and managers.

Guidelines to implement assessment centre practice:

1. Use job analysis to determine the components of effective performance

2. Identify performance metrics that can be measured using this assessment center
3. Classify meaningful and relevant candidate behavior in the assessment process
4. Find assessment techniques that can ideally elicit ideal behavioral information
5. Spot assessors and assessee’s excluding immediate supervisors
6. Provide thorough training to assessors and reviewers
7. Maintain a system of performance records for each candidate
8. Review records and reward employee or provide training accordingly

Did you know?

Microsoft, Philips, and several other organizations use the assessment centre practice to identify future leaders in their
workforce.

4. Behaviorally Anchored Rating Scale (BARS)

Behaviorally anchored rating scales (BARS) bring out both the qualitative and quantitative benefits in a performance appraisal
process. BARS compares employee performance with specific behavioral examples that are anchored to numerical ratings.
Each performance level on a BAR scale is anchored by multiple BARS statements which describe common behaviors that an
employee routinely exhibits. These statements act as a yardstick to measure an individual’s performance against predetermined
standards that are applicable to their role and job level.

The first step in BARS creation is generation of critical incidents that depict typical workplace behavior. The next step is
editing these critical incidents into a common format and removing any redundancy. After normalization, the critical instances
are randomized and assessed for effectiveness. Remaining critical incidents are used to create BARS and evaluate employee
performance.

Advantages of using BARS:

 Enjoy clear standards, improved feedback, accurate performance analysis, and consistent evaluation
 Eliminate construct-irrelevant variance in performance appraisal ratings by emphasis more on specific, concrete, and
observable behaviors
 Decrease any chance for bias and ensure fairness throughout the appraisal process
 Ideal for:

Businesses of all sizes and industries can use BARS to assess the performance of their entire workforce from the entry level
agent to c-suite executives

Common drawbacks of BARS:

1. High chance for subjectivity in evaluations

2. Hard to make compensation and promotion decisions
3. Time-consuming to create and implement
4. Demands more from managers and senior executives

5. Psychological Appraisals
Psychological appraisals come in handy to determine the hidden potential of employees. This method focuses on analyzing an
employee’s future performance rather than their past work. These appraisals are used to analyze seven major components of an
employee’s performance such as interpersonal skills, cognitive abilities, intellectual traits, leadership skills, personality traits,
emotional quotient, and other related skills.

Qualified psychologists conduct a variety of tests (in-depth interviews, psychological tests, discussions, and more) to assess an
employee effectively. However, it is a rather slow and complex process and the quality of results is highly dependent on the
psychologist who administers the procedure.

Specific scenarios are taken into account while performing psychological appraisal. For instance, the way in which an
employee deals with an aggressive customer can be used to appraise his/her persuasion skills, behavioral response, emotional
response, and more.

Advantages of psychological appraisals:

1. Extract measurable, objective data about not just an employee’s performance but also potential
2. Can be deployed easily when compared with other performance appraisal methods
3. Offer introverted or shy employees a platform to shine and prove their potential

Ideal for:

Large enterprises can use psychological appraisals for an array of reasons including development of leadership pipeline, team
building, conflict resolutions, and more.

Common reasons for failure:

Absence of proper training, lack of trained professionals to administer reviews, and nervousness or anxiety of candidates can
skew results.

Did you know?

 Ford motors, Exxon Mobil, Procter & Gamble use psychological appraisals to test the personality and performance of their
employees.

6. Human-Resource (Cost) Accounting Method

Human resource (cost) accounting method analyses an employee’s performance through the monetary benefits he/she yields to
the company. It is obtained by comparing the cost of retaining an employee (cost to company) and the monetary benefits
(contributions) an organization has ascertained from that specific employee.

When an employee’s performance is evaluated based on cost accounting methods, factors like unit-wise average service value,
quality, overhead cost, interpersonal relationships, and more are taken into account. Its high-dependency on the cost and benefit
analysis and the memory power of the reviewer is the drawback of human resources accounting method.

Advantages of the human cost accounting method:

 Effectively measure the cost and value that an employee brings to the organization
 Help identify the financial implications that an employee’s performance has on the organization’s bottom line

Ideal for:

Startups and small businesses where the performance of one employee can make or break the organization’s success.

Implementation of human resource cost accounting method:

1. Identify the gap between the market and the current package of an employee
2. Determine the monetary and non-monetary value that an employee brings to the table
3. List down the things that an employee achieved in the review period (increase in the subscriber count, improvement in revenue,
number of new deals won, etc.,)

A future-focused employee performance appraisal method

Choosing the right performance appraisal method is more critical than ever since it reflects what you think of your employees
and how much you care about employee morale. Once you’ve found an ideal performance review method for your needs, the
next step is implementing it properly to eliminate critical performance gaps and address pressing issues that impact ROI.